Samsung has reported a 25% drop in the second-quarter operating profits. This is its worst quarterly profit in the last two years, and third consecutive quarter with weak performance.
As the smartphone market becomes more competitive than ever, the Korean technology giant is worried about its comeback as it finds the second half of 2014 a “challenge”.
The company expects better results from the ongoing quarter, and anticipates 10% growth over Q2’s earnings. Samsung also said it will launch new premium smartphones with new design and material. Notably, the company is expected to launch its flagship phablet Note 4 next month at an event in Berlin.
The giant in an ever so growing competitive market
Over the past few months, several new smartphone makers have succinctly positioned their handsets in the market. Motorola’s Moto X, Moto G, and Moto E have fared well in several markets, and strategically priced phones from Xiaomi and several other manufacturers have also lured many users.
In India, Xiaomi’s recently launched Mi3 is already giving Samsung (among other vendors) a run for its money. We have also seen homegrown manufacturers like Gionee launch excellent devices at decent price point.
During a conference call with analysts Samsung Senior Vice President Kim Hyun-joon speaking about the mobile business said that considering intensifying competition of price and specifications as well as the release of new competing models, it is difficult to expect earnings to improve from the second quarter.
New smartphones and wearable incoming
Samsung recognizes the growth of competition, and is figuring out its way back. Prospects for growth remain unclear as competition over global market share intensifies in the mobile industry, the company said in a press release (pdf).
The company added that it expects to see its sales of mobile devices increase with the rollout of flagship products and new models, but profitability may suffer due to a heated race over price and product specifications.
The company will launch new smartphones, including a new flagship model in the large category, while shelling out new handsets in the mid-to-low budget categories with “more advanced features and competitive pricing”.
Besides the smartphone, Samsung is also looking to strengthen its presence in wearable section. The company said it will introduce “a more diverse product portfolio”.
What went wrong?
The shipments of both smartphones and tablets have been low for the Korean technology giant. However, in addition to the growing competition, the company has also blamed the typical weak demand for mobile devices at this time of the year.
Besides that, excess inventory overhead in regions like Europe also caused a slide in the profits. The company also says that it could have spent fewer dollars on marketing.
Samsung’s operating profit summed to 7.2 trillion won ($7.03 billion). The company reports the operating profits fell 24.6 percent annually as it had snagged 9.53 trillion won in the year earlier.
Samsung’s mobile sales, which usually accounts for two-thirds of its total revenue registered a profit of $4.42 billion — 30 percent drop from the year before and 31 percent down sequentially. The overall sales dropped by 20 percent to $27.65 billion.
Samsung’s flagship smartphone, Galaxy S5 went on sale this past April and in just one month the company was able to sell 11 million handsets. While it is a significant improvement over its predecessor — Galaxy S4 which sold 1 million units — the fact that Samsung hasn’t revealed any new figures in recent times suggest not so overwhelming results.
Analysts advise Samsung to introduce curved displays — much like LG — and stop using “apologetic” plastic on its premium products. While others advise the company to differentiate its high-end products from cheaper devices by introducing a whole new brand.
In the chip sector, Samsung reports a profit of 1.86 trillion won. The company anticipates that its chip business — excluding the memory chips — might suffer a loss citing poor demand and high competition.
The company has planned to invest 24 trillion won in capital expenditure this year, among which 14.4 trillion won will be used in the chips business.